Tuesday, September 1, 2009

Profit and profitability

In my last post, I revealed the Magic Formula for Transit Profitability:

1. Give transit its own right-of-way and good terminals2. Make it hard to use cars3. Make it expensive to use cars4. Profit!

In response, Jarrett wrote,

No question that you could make transit profitable by that method. Are you sure you WANT transit to be profitable?

Isn't its loss-making nature part of what keeps it under government control, and thus accountable to the city? Sure, a profitable carrier is good to its customers, but it's not always a very good partner for government's efforts in infrastructure development and planning.

Alon pointed out that profitable transit companies in Hong Kong and Japan do promote transit-oriented development, because it suits them, and this has also been true of other private transit operators in the past.

I'm a lefty from way back, and I've got a major mistrust of the profit motive. But I honestly don't trust the government to do a better job promoting transit. In fact, here in New York we've got a mess of government forces, of varying degrees of corruption and accountability, who take turns sabotaging transit. Ten years ago it was Mayor Giuliani and Governor Pataki starving the MTA of funding and directing their appointees to saddle it with debt. Now we've got a pro-transit mayor and governor, and it's the state legislators who are keeping transit down. If nothing else, we need profitable transit operators so that they can bribe the state senate on their own initiative without running the risk of bringing down the city government.

But in actuality, the government can still have lots of control even if transit is profitable. Let me show you how.

I'll start with Dave Olsen's examples, since he holds them up as successes of fare-free policies. But the money comes from somewhere. First, on Whidbey Island, Washington, Olsen writes that fiscal conservatives have tried to defund the agency, along with the rest of the government:

In 1999, State Initiative 695 eliminated the motor vehicle excise tax as a source of revenue for transit systems, taking away 60 per cent of Island Transit's funding at the time. They've since more than doubled their 1999 operating budget by doubling the local sales tax collected (60 cents, up from 30 cents, for every $100 spent in Island County). The district could legally increase the sales tax by another 0.3 per cent, or 30 cent per $100 spent, if and when local voters are asked to approve it.

So the voters of Whidbey Island voted to increase taxes, bucking a wider anti-tax trend, in order to fund this fare-free transit system. Why did they do this? Probably because they see the bus as something they use, not something other people use. And why do they use it? Olsen gives us a hint:

One of the many things we could learn from Island Transit is how they've worked with the Washington State Ferry system to prioritize walk-on, cycling, and vanpool travelers. Buses meet every ferry (at a half hour frequency from 4:40 a.m. to 11 p.m.), drop their passengers within steps of the ferry, load ferry travelers and depart the terminal before any car traffic starts to unload. Vanpools load and offload the ferry first and are guaranteed never to wait even one sailing.

There are only three ways to get on and off of Whidbey Island, aside from private boats and airplanes: a bridge and two ferry routes. The two-lane Deception Pass Bridge connects to the north end of the island, in the opposite direction for commuters to the Seattle area. The peak ferry fare is $8.60 with a car, $3.95 without (PDF), and Olsen tells us how the ferries prioritize transit riders and cyclists. Apparently, the ferry is such a hassle for drivers that as many as 300 commuters keep a second car on the mainland and either walk or take the bus to the ferry.

In other words, Island Transit works by the Magic Formula as well: (1) the buses bypass the only significant congestion on the island, (2) there are often long waits for cars at the ferry dock, (3) the ferry costs significantly more if you take your car. But instead of taking the revenues in as fares, it takes them as sales taxes, and instead of riders voting with their feet, they do it with voting machines.

If Island Transit were a regular corporation charging fares, it probably would make a profit. Instead it's non-profit, but it is profitable in the sense that it's able to make a profit. The bottom line is the same: the service is stable and well-run, and feels like something that people want to ride, rather than being forced to by circumstance.

And to answer Jarrett's question, even if the buses weren't run by a municipal corporation, the State of Washington runs the ferries, and the bridge, and the roads. In other words, it holds the keys to profitability. That's enough to persuade a bus operator, I think.

2 comments:

This comment isn't directed at this post in particular, but I would like to compliment you on your blog.

I have always had a fondness for public transit, especially trains. I think that transit betters people's lives, and it betters our complex world.

But I am also a complete pragmatic. I love to read blogs like Streetsblog and Infrastructurist, but sometimes the commentary from the authors is enough to make my head explode. The same goes for Randall O'Toole. One thing I have found in common with all of them: They ignore science, empiricism, and economics.

I can see from your blog that I might disagree with you in some aspects, but I really appreciate your approach. Specifically, it is nice to see quoted research and journals, as well as explanations and solid reasoning.

Keep up the good work...I hope some day your blog can overtake those other blogs.